FAQ’s FOR CAR BUYERS
Yes. The interest rate is always negotiable, just like the price of the car.
The first price the dealer offers for the car may not be the lowest price available to you, and the first rate for the loan the dealer offers you may not be the lowest rate you qualify for.
You can look up the value of your car using websites such as the Kelley Blue Book andEdmunds.com. Additional resources, including the Kelley Blue Book, may also be available at your local library.
If you still have a loan for the car you plan to trade in, there are steps you should take to make sure you don’t end up with both old and new debt
A. Get the payoff amount from your current lender before going to the dealership. This is the amount it will take to pay off your existing loan, and it will likely be different from any outstanding balance listed on your statement or coupon book.
B. Find out which department of your current lender to contact to confirm that, once you have your new loan, your old loan has indeed been paid off.
C. After about a week, use the contact information to find out if your old loan has been paid off.
TIP: If you know that your payoff amount is more than the dealer is willing to give you for your trade-in – which means that even after you trade in your car, you’ll owe money on it – you should consider whether it makes sense to go through with the transaction and purchase the new car.
If you buy a new car while you still owe money on your old car, your new car loan may not cover both the amount you still owe on your old car and the amount you will owe on the new car. This could lead to a big debt.
If you owe more than your current car is worth – sometimes referred to as being “underwater” or having “negative equity” – you should consider whether you can afford a new car.
You should look up the value of your current car using websites such as the Kelley Blue Bookand Edmunds.com. You may also find the Kelley Blue Book and other resources at your local library. Look up the “private sale” value, because that’s what you can get if you sell your car to an individual. Then call your lender to find out how much you still owe on your loan.
A car dealer will probably offer to “roll in” the balance of your old loan into a loan for a new car. This is called a “negative trade-in,” because the trade-in adds to the cost of the new loan, rather than reducing it. This might make the new loan unaffordable. Be very careful to make sure you understand the total cost of the new loan and the monthly payments – and the loan term (in months) – before you agree to anything.
TIP: Be sure to talk to your dealer about any outstanding loans or financing and ensure that your dealer pays off your current loan if you trade in a car with a balance due
A credit report contains information about your credit history and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using, and whether a debt collector is collecting on any debt you owe. Credit reports also can contain public records such as liens, judgments, and bankruptcies that provide insight into your financial status and obligations.
Lenders use these reports to help them decide if they will loan you money, what interest rates they will offer you, or to check the status of an existing loan. Companies can purchase these consumer credit reports to help inform them while making a wide range of business decisions such as providing or pricing insurance; renting you an apartment; and (if you agree to let them look at your consumer report) making employment decisions about you.
Credit reporting companies (also known as credit bureaus or consumer reporting agencies) compile these reports.
A down payment is an initial, upfront payment you make towards the total cost of the vehicle. It is usually given in the form of cash and/or trade-in (typically of another vehicle) at the time you finalize the transaction. If you are buying the vehicle outright, an auto loan is typically used to cover the remaining balance for purchasing the vehicle.
A down payment helps ensure that the lender can recover the balance due on the loan in the event that you default.
Amortization describes the process of gradual payment of the amount on your loan. For each of your monthly payments, a portion is applied towards the amount of the loan – the principal – and a portion of the payment is applied towards paying the finance charge – the interest.
A greater percentage of your monthly payment is applied to interest early in the life of the loan, and a greater percentage is applied to the principal at the end. Thus, the principal balance decreases slowly at first and more quickly closer to the end of the loan term. So if you default early in the life of the loan, you will still owe a significant amount on the principal because only a relatively small percentage of your monthly payments were applied to the principal.
Guaranteed Auto Protection (GAP) plans may be offered to you when you buy a new car. GAP protection covers the difference between what your insurance pays if your vehicle is totaled and the damage to your vehicle exceeds the actual cash value (ACV), and the amount you still owe the lender at that point.
If you’re told you must purchase a GAP plan to qualify for financing, the cost of the GAP program must be included in the finance charge and reflected in the disclosed annual percentage rate. Only if the plan is optional can it be excluded from the charge and annual percentage rate.
You should check your credit report at least once a year to make sure there are no errors that could keep you from getting credit or best available terms on a loan. You should also check your report before making a major purchase that would involve a loan, such as a house or a car. Be sure the information in the report is accurate and up-to-date.
It is also a good idea to review your credit information regularly to guard against identity theft. Identity theft occurs when someone uses your personal or financial information to commit fraud. For example, an identity thief may use your information to open a new credit card account in your name. When they do not pay the bills, the delinquent account is reported on your credit report, damaging your ability to get credit in the future and subjecting you to calls from bill collectors. For more information, visit the Federal Trade Commission’s Fighting Back against Identity Theft website.
Besides checking your credit report, you should also review at least once a year the reports that specialty reporting companies have you relating to your: medical records or payments, residential or tenant history, check writing history, employment history, or insurance claims.
Tip: Fix errors in your credit report. The information in your credit report affects whether you can get a loan – and how much you will have to pay to borrow money. So if you find something wrong with your credit report, dispute it. Be on the lookout for loans or credit cards listed that you never opened, misspelled names, or collection items that were not updated after a settlement was reached and satisfied.
Also, be on the lookout for duplicates of the same debt appearing on your report. There should only be one listing of each debt you owe. The information in your credit report affects whether you can get a loan — and how much you will have to pay to borrow money
If you make timely payments, an auto loan will help you build your credit if the lender reports your payments to one or more of the three major credit bureaus (Experian, Equifax, and TransUnion).
Remember that taking out an auto loan will only help rebuild your credit if you make your payments on time.